Fungus to wipe £7M from Tate & Lyle’s profit
The firm’s financial update includes a prediction of “modest progress” for the full year with operating profits in the speciality food ingredients business in line with last year.
Within bulk ingredients, the overall demand for North American liquid sweeteners was solid during the third-quarter, while in Europe, margins for liquid sweeteners were broadly in line with the same period last year.
The firm said the markets for industrial starches in both Europe and the US were relatively stable but the environment for US ethanol continued to be challenging.
Sales in food systems were broadly in line with the comparative period on lower volumes.
However, the outlook for its maize and co-products division looks less stable.
Aflatoxin outbreak
The firm reported: “Corn [maize] supplies in the US and Europe remained tight … prices are expected to remain high with some volatility over the coming months until the new harvest.”
Third-quarter performance has been hit in this area by measures to tackle aflatoxin, a fungus caused by the unusually hot and dry conditions in the US last summer. The knock-on effects will wipe £7M from its full-year operating figures.
“The impact of aflatoxin from the new harvest corn was felt particularly in the third-quarter while we implemented a number of actions including adjustments to our corn sourcing programme,”added the report.
“We expect a further small increase in net corn costs in the final quarter of the financial year and estimate the impact of aflatoxin will be to reduce operating profit by around £7M for the full year. We will continue to take action to manage the risks posed by aflatoxin during the first half of next financial year up to the new harvest.”
Intense competition
Investec analyst Martin Deboo said the update was “reasurringly dull”.
He said 2014 trading guidance will need to wait for the company’s preliminary full-year report, but early signals were for better foreign exchange on profits offset by higher tax and financing.
“For us, this amounts to a 3% or so net upgrade relative to our post-third quarter forecast. We remain holders at our recently upgraded 860p price target,” he added.
However, Deboo said the firm still faced some key issues, including intense competition in the sweeteners market, which accounted for 20% of the firm’s profits. He said it was an area “where both Sucralose generics and Stevia are on manoeuvres”.
Panmure Gordon analyst Graham Jones edged up his price target for Tate & Lyle from 730p to 750p.
